“Since January, mortgage rates have increased half a percentage point from historic lows and home prices have risen, leaving potential homebuyers with less purchasing power”
When you buy a home, it’s important to determine a monthly budget. This will help you to plan and understand what you can afford. When you make a budget, make sure you stick to it because even a small change can make a large impact.
According to the National Association of Realtors (NAR), the median existing-home price is $313,000. Let’s use $300,000 as a simple number close to the median price. Below you’ll see an example of how a change in mortgage rate will impact your monthly principal and interest payments on a house.
Here is a great example: let’s say you are getting ready to buy a home and you know you can afford a monthly payment of $1,200 - $1,250. When the mortgage rate increases, the loan amount has to decrease to keep your monthly cost in line. In other words, if you want to stay within your budget, you might need to look for a lower-price home as the mortgage rate goes up.
It’s always ideal to close on a home loan when the current mortgage rates are low like they have been recently. This will allow you to afford payments on a larger loan, which in turn gives you more purchasing power when you go to buy a home. Mark Fleming, Chief Economist at First American, explains:
“Monthly payments have remained manageable despite soaring home prices because of low mortgage rates. In fact, monthly payments remain below the $1,250 to $1,260 range that we saw in both fall 2018 and spring 2019, but they are on track to hit that level this spring.
Although they remain low, mortgage rates have begun to increase and are expected to rise further later in the year, thus affordability will test buyer demand in the months ahead and likely help slow the pace of price growth.”
Currently, the mortgage rates are very low, but the experts have said they are projected to go back up as we go through 2021. This means, every moment matters for homebuyers that want to get the lowest mortgage rate possible. The first step for any homebuyer, especially in today’s market, should be getting pre-approved. This is a lender’s indication that they will lend you money for a home. To get pre-approved, you must turn in all the financial documents you would for a loan application. Once complete, you will receive a pre-approval letter, which shows sellers you’re serious about buying. Unlike prequalification, a pre-approval identifies potential issues before starting the home search because it verifies your credit history, income, and assets. Connect with our team today to get started!